Social Capital Hedosophia Holdings VI Is a Trade Now and Maybe an Investment Later

I first wrote about Social Capital Hedosophia Holdings VI (NYSE:IPOF) in mid-February. At the time, IPOF stock was trading at a slight premium. However, it seemed to be a good option against a volatile market.

An image of wooden blocks that say SPAC over a series of one dollar bills.

Source: Dmitry Demidovich/

One month later, the SPAC looks no closer to announcing a target. Despite his sterling reputation the venture capitalist heading up the SPAC, Chamath Palihapitiya, may find his options less exciting than he’d like.

It would seem unlikely that Palihapitiya will be unable to identify a target to bring public.

Until investors have concrete evidence to go on though, IPOF stock looks to be more of a trade than an investment.

The Palihapitiya Premium and IPOF Stock

The rationale for investing in IPOF stock is the reputation of Palihapitiya. A typical SPAC will muddle along at around $10 or so until a target becomes clearer. In the run-up to the announcement the SPAC will surge if investors like what they hear.

IPOF stock seems to be an exception. If the individual heading up the SPAC has a respected and/or proven reputation of bringing SPACs to market, the SPAC will normally trade at a premium.

Bill Ackman falls into this category as does Palihapitiya who is known as the SPAC king. The thinking is that these individuals will be able to attract the best companies.

In the case of Social Capital Hedosophia Holdings VI, one such target was widely assumed to be the financial payments company, Stripe. I’d encourage you to read Mark Hake’s article that explains why Stripe may not be a very likely target. Investors seem to sense that as well.

If Not Stripe Than Who?

It would be speculation that I’m not engaging in at this point. That’s because it’s not clear how long the appetite for going public via a SPAC will continue. Investors are growing weary of them and that could make companies to reconsider going public via a traditional initial public offering (IPO) or via a direct listing.

Josh Enomoto wrote about the prevalence of SPAC’s in this way: “In the year-to-date, SPACs number 231, which is inside 7% of all of 2020. Just from simple probabilities, the chances of any individual SPAC delivering the goods has declined significantly.”

What Enomoto is saying is that it may not matter how good a jockey Palihapitiya is if there are no horses that he likes.

In Other News

In doing my research for this article, I came across this item from February. As it turns out, Palihapitiya has pondered the idea of running against California governor Gavin Newsom in a recall election. The article, which appeared in early February, made it clear that Palihapitiya had no intention of entering the race at that time.

But in early February, it was less certain that there would actually be a recall election. Today it’s become a near certainty. Let’s also be clear, here. The article – which was based on an episode of Palihapitiya’s podcast – stated that the SPAC king didn’t rule out running.

This may seem like a silly news item to put in a stock article, but let’s be honest with each other: The interest in IPOF stock has to be about the jockey because there is no horse. That makes the question about what might happen to the Social Capital Hedosophia Holdings family of SPACs if Palihapitiya were to run for governor fair game.

You Can Wait on IPOF Stock

Until Palihapitiya announces a target for his SPAC, IPOF stock may make for an interesting trade. This is particularly true if the stock drifts closer to the $10 price that is common with many SPACs prior to a merger.

But until then, there would be other speculative stocks that will give investors actionable information which they can use to make a decision. If you’re looking for growth those stocks may provide more risk but also, in the short term, a higher reward.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.

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